How diesel, gas price increases add to the inflation of everything

If you are wondering what swelling the price of everything you buy, the price of a gallon of diesel is a good place to start.

Record gasoline and diesel prices across the country are the main cause of inflation not seen in 40 years, and it’s worse in California, where both fuels are more expensive than anywhere else. other in the country.

For those who drive cars, each time you go to the gas station will help you feel less pain. But consumers should also worry about how diesel, which most people never buy, is quietly distorting their wallets.

That’s because diesel fuels the world’s economy, and fuel prices have risen faster and higher than gasoline.

“People should be very concerned. This will spread throughout the economy,” said economist Philip K. Verleger Jr., who has analyzed energy markets for more than 50 years.

Gas and diesel have been pushed higher by a sharp increase in oil prices after Russia invaded Ukraine and the US banned Russian petroleum products. Rapidly increasing demand for both fuels added a leap forward.

According to the US Department of Energy’s weekly survey, US diesel prices rose Monday to $5.57 a gallon, up from $3.25 a year earlier, despite massive trucking operations. There are some protections against sudden price increases through contracts with suppliers.

In the US, trucks and trains are the biggest users of diesel engines. It moves most of the products used by consumers as well as raw materials to manufacturers, construction sites and the like, said Verleger, putting pressure on prices along the supply chain.

Diesel also powers key industries including agriculture, construction and manufacturing. Even your favorite food truck can run on diesel, which will make your portable comfort food more expensive.

To understand how diesel prices are affecting consumers, look at trucking operations like Liberty Linehaul West.

The Montebello company is spending an average of $1,340 per truck, up from $770 a year ago, to fill 50 of its large rigs with diesel, said President Greg Dubuque. For trucks on California-only routes, costs are significantly higher because all fuel – whether diesel for 18-wheelers or gasoline for passenger cars – costs much more in the Golden State than in anywhere else in the US.

Greg Dubuque

Greg Dubuque, president of Liberty Linehaul West, said the Montebello company is spending an average of $1,340 per truck, up from $770 a year ago, to fill 50 large rigs with diesel.

(Jason Armond / Los Angeles Times)

Because Dubuque is paying more for diesel, consumers are likely to pay more for everything the company has to offer.

And Liberty Linehaul ships a lot, with many of its rigs operating between giant warehouses and retailers of all sizes across the United States and Canada. In those loads are items as small as jewelry or as large as furniture. Another popular form of delivery is clothing.

Furthermore, nearly all of those products are delivered to warehouses from abroad via freight trains (which use diesel engines in part of the journey) and diesel trucks.

Liberty Linehaul is also in the healthy business of bringing rigging, lighting, and sound equipment to major entertainment events, which puts additional pressure on promoters to raise ticket prices.

“We’re trying to manage it as best we can, but it’s ripping us apart,” said Dubuque, who also hosts California Trucking Assn. “As an industry, we have never seen anything like this. It was hard to keep pace when that price went up and it affected our profits by at least 12%. ”

The diesel-dependent members of the trucking group, Dubuque said, ship more things than Liberty Linehaul, pretty much “anything that needs to get from one point to another.” The list includes food, fuel, medical equipment, microprocessors and automobiles.

Walmart and Target last week cited surprisingly high fuel costs as a factor in quarterly earnings that fell short of Wall Street expectations, and shares of both retailers plunged. Executives of the retail giants say unexpectedly high fuel and other costs are leading to higher prices for shoppers.

CEO Doug McMillon told analysts at Walmart, which owns 7,400 diesel trucks, that US fuel costs are $160 million higher than the company’s forecast.

A Walmart truck travels on the highway.

Walmart, which operates a fleet of 7,400 diesel trucks, paid $160 million more in fuel than expected in the first quarter, prompting the retailer to post earnings that fell short of Wall Street expectations.

(Morrow Gash / Associated Press)

“We typically approve cost increases from our suppliers by cost of goods category, but fuel costs rose during the quarter faster than we were able to get through,” McMillon said.

Of course, soaring fuel costs aren’t the only reason for 1980s-style inflation. Supply chain problems, soaring consumer demand and rising labor costs all have causes. causing the problem, as the National Retail Federation noted in its latest monthly economic report.

Here’s a sample of the industries affected by higher diesel prices and how some of the higher-cost industries reach consumers:

The trailer sits at the loading dock of the trucking company Liberty Linehaul West.

Trailers sit at the loading dock at Liberty Linehaul West in Montebello as they wait to ship items as small as jewelry or as large as furniture.

(Jason Armond / Los Angeles Times)

Agriculture

American agriculture depends on diesel to power most heavy farm equipment.

The tractor that prepares the land for planting is powered by a diesel engine. Tillers to loosen the soil and fertilizer machines use diesel engines. Planting and seeding equipment requires diesel fuel. Once the food is grown, along with the harvesters, powered by diesel engines.

High diesel prices further complicate farmers’ financial picture, Verleger said.

“Farmers pay for the diesel, plant the crops, hope that the crops will bear fruit, hope the prices will be okay,” he said. “Now they may not have enough cash and the banks may not give them the cash to buy all the fuel they need. They can grow smaller crops, which means food prices will be even higher. “

Greg Dubuque walks past the queue, where the trailers are waiting to be filled

“We’re trying to manage it the best we can, but it’s ripping us apart,” said Greg Dubuque, president of California Trucking Assn. in addition to being president of Liberty Linehaul West.

(Jason Armond / Los Angeles Times)

The construction

According to the Diesel Technology Forum, a trade group promoting diesel technology, diesel engines are a mainstay of the construction sector, accounting for 98% of the industry’s energy consumption. Uses include heavy equipment such as excavators to excavate foundations, levelers to move soil, and piling machines to reinforce foundations.

Consider the typical office building. It may require removal of three to four stories of valuable soil, which is transported by diesel trucks. The crane, which runs on diesel, helps workers build the frame of the structure. All the equipment needed to operate an office building is reached there by diesel-powered trucks.

New home construction is also affected, along with the small apartment or kitchen extension you’ve planned.

What devices have you ordered but are still waiting for? When they finally arrive, they will be transported by diesel trucks.

Production and mining

Diesel Technology Forum said that diesel is the basic fuel of mining and manufacturing, as well as logging.

More than 60 percent of U.S. fuel extraction and production equipment is diesel-powered, the group said.

Manufacturers use a wide variety of diesel-powered equipment that, as the Diesel Technology Forum puts it, “creates goods and services that Americans use in their daily lives.” For example, diesel engines often ignite boilers used in chemical plants and textile factories, according to the National Renewable Energy Laboratory.

According to the Department of Energy, many industrial facilities also have diesel generators to provide backup power, which are shared by institutional facilities, hospitals, office buildings and electrical utilities.

Transport

The industry that moves you, your kids and your belongings remains dependent on diesel despite some inroads by alternative fuels and electric vehicles.

Government data shows that more than 80% of American goods are imported, which means they could have arrived here on a ship or truck. According to the Diesel Technology Forum, airplanes fly on jet fuel, but air transport operations rely on elevators and diesel-powered vehicles to load and move the plane around, according to the Diesel Technology Forum. .

In California, more than 80% of consumer goods are transported by diesel trucks, according to California Trucking Assn. Nationally, 76% of all commercial vehicles and 98% of large rigs use diesel engines, the Diesel Technology Forum said.

That means your late-night e-commerce habits and your next mall operation could cost you more because of higher diesel prices.

Moving to a new house or apartment? Expect your truck to run on a diesel engine.

Some of the most precious goods including children and 95% of school buses still run on diesel engines, according to business analytics firm IHS Markit. You don’t care because you don’t have children? You are still paying for education with your tax dollars.

According to the Diesel Technology Forum, eighty-four percent of U.S. transportation buses burn diesel. Nearly all of the nation’s 23,000 locomotives, carrying goods or people, run on diesel.

Why diesel will still be expensive

Patrick De Haan, Gas Buddy’s head of petroleum analysis, said diesel prices are likely to stay higher for longer than gasoline prices as diesel inventories have fallen to multi-year lows. Department of Energy data released on Tuesday showed distillate inventories, a category that includes diesel, 22 percent below the five-year average for this time of year.

De Haan said California is coming up with its own problems as diesel output at the state’s refineries is down 26%. California’s strict air quality regulations require cleaner-burning fuels to be produced in most of the United States, and several refineries outside the state create a unique blend.

Also, the embargo on Russian oil imports has affected California in a way that doesn’t affect other states much.

“Russia has been selling the United States 800,000 barrels of oil products a day, essentially semi-refined heavy oil, which California refiners love because it’s partially processed,” De Haan said. ,” De Haan said. California refineries have difficulty replacing Russian products at comparable prices, he said.

Energy economist Verleger takes a long-term view, taking into account the cyclical nature of energy markets and the economy.

“The diesel problem is pretty serious and I think I know how it will resolve itself,” he said. “I think a year from now, we’re going to look and say, ‘How did we get into this terrible recession?’ ”

https://www.latimes.com/business/story/2022-05-26/high-gas-and-diesel-prices-fuel-inflation-hurting-consumers How diesel, gas price increases add to the inflation of everything

Edmund DeMarche

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